15 December 2005 implementing the Law on Value Added Tax and the Law on Amendments to the Law on Value Added Tax

Pursuant to the Law on Value Added Tax (VAT) 02-1997-QH9 dated 10 May 1997;

Pursuant to the Law on Amendments to the Law on VAT dated 17 June 2003;

Pursuant to Decree 158-2003-ND-CP of the Government dated 10 December 2003 making detailed provisions for implementation of the Law on VAT and the Law on Amendments to the Law on VAT;

Pursuant to Decree 148-2004-ND-CP of the Government dated 23 July 2004 amending article 7.1 of Decree 158-2003-ND-CP above;

Pursuant to Decree 156-2005-ND-CP of the Government dated 15 December 2005 amending Decree 158- 2003-ND-CP above;

Pursuant to Decree 77-2003-ND-CP of the Government dated 1 July 2003 on functions, duties, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance provides the following implementing guidelines on value added tax (VAT):

A. SCOPE OF APPLICATION OF VAT

I. Taxable Objects and VAT Payers

1. Taxable objects:

Goods and services (including goods and services purchased from organizations and individuals overseas) used for the purposes of production, trading and consumption in Vietnam shall be subject to VAT, except as provided in Section II of Part A of this Circular.

2. VAT payers:

Organizations and individuals producing and trading VAT taxable goods and services in Vietnam, irrespective of the line, form or organization of business (hereinafter collectively referred to as business establishments) and other organizations and individuals importing VAT taxable goods or purchasing VAT taxable services from overseas (hereinafter collectively referred to as importers) shall be liable to pay VAT.

Organizations and individuals producing and trading goods and services comprise:

2.1 Business organizations established pursuant to and with business registration in accordance with the Law on Enterprises, the Law on State Owned Enterprises (now the Law on Enterprises) and the Law on Co-operatives.

2.2 Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, units of the people's armed forces, professional organizations and other organizations.

2.3 Enterprises with foreign owned capital and foreign parties to business co-operation contracts under the Law on Foreign Investment in Vietnam (now the Law on Investment); and foreign organizations and individuals conducting business in Vietnam but which have not established a legal entity in Vietnam.

2.4 Individuals, family households, independent groups of persons conducting business, and other business objects conducting production, trading or import activities.

II. Objects Not Subject to VAT

1. The following goods and services shall not be subject to VAT:

1.1 Products of cultivation (including forestry cultivation), husbandry, aquaculture or fishing which have not yet been processed into other products or which have only been semi-processed by organizations or individuals producing, catching and selling products at the import stage.

Products which have not been processed at a level higher than semi-processing as stipulated in this clause or products which have not yet been processed into other products shall be determined as follows:

(a) In the case of cultivated products, it means products which have only been sun-dried, dried, cleaned, preserved fresh by using chemicals, unshelled, classified and packed.

(b) In the case of products of husbandry, aquaculture or fishing, it means products which have only been sun-dried, dried, cleaned or frozen, classified and packed.

1.2 Products being domestic animal breeding stock and plant varieties such as breeding eggs, young animals, seedlings, seeds, sperm, embryos and genetic materials at the stages of rearing, importation and commercial trading. Products being domestic animal breeding stock and plant varieties which are not subject to VAT means products imported or commercially traded by establishments which possess a business registration certificate for domestic animal breeding stock and plant varieties issued by the State administrative body. With respect to products being domestic animal breeding stock and plant varieties which are subject to State regulations on standards, their quality must satisfy the conditions stipulated by the State.